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Monday, July 18, 2005

JAPANESE PERSPECTIVES

In final analysis, postal bills hold key to rationalizing the status quo


Now that he's back from the Group of Eight summit in Gleneagles, Scotland, Prime Minister Junichiro Koizumi faces an uphill battle to get his postal privatization bills approved by the House of Councilors.

In the House of Representatives vote held just before Koizumi's departure for the G8 summit, 51 lawmakers in his ruling Liberal Democratic Party, including vice ministers and parliamentary secretaries in his Cabinet, either voted against or boycotted the vote on the bills.

As a result, the bills cleared the Lower House by a margin of only five votes. The gap between Koizumi's ruling coalition and the opposition camp is narrower in the Upper House than in the lower, and the postal bills could be rejected if 18 or more members of the LDP vote against them.

Despite doubts over the fate of the postal bills, however, we have to realize that today's huge public-sector debt and the nonperforming loans in the public financial sectors are the results of the government's longtime policy of channeling postal savings funds into inefficient projects through the Fiscal Investment and Loan Program and the purchase of government bonds.

Given that the aging of the Japanese population is accelerating, and that the nation's savings rate is expected to decline, it is imperative that the funds pooled in "yucho," the postal savings system that accounts for roughly 30 percent of the country's individual savings — and "kampo," the postal insurance system that accounts for about 40 percent of individuals' life insurance funds in the nation — are efficiently managed.

To achieve that goal, the postal bills will have to be endorsed by the Diet.

There has been considerable debate on how the postal organization should be reformed after privatization. But what is also important to clarify is: the sector-by-sector profitability of the postal operations, the capital base of each sector, and the viability of each of the postal savings units.

Opponents of postal privatization often argue that consumers will be inconvenienced if the post offices in their communities are shut down. But voters also need to think about who will be footing the bill to maintain those facilities. We need to realize that many of the post offices constructed since the '80s were placed in urban districts that already had private-sector financial services, instead of depopulated rural areas that had a greater need for them.

People should also know that the post office, without paying the taxes or deposit insurance premiums required of its private-sector competitors, has been expanding with the backing of government guarantees, which has thereby contributed to the creation of big government.

It is undeniable that the nationwide network of about 25,000 post offices has served as a vote-gathering machine for the LDP, and this makes postal privatization a politically sensitive issue for lawmakers.

Many of the LDP members who voted against the bills in the Lower House are the ones who favor heavy spending on public works and have a stake in maintaining the big government policy.

True, privatization will create unemployment problems for the nation's nearly 300,000 post office workers — who outnumber the 250,000 staff of the Self-Defense Forces. But private-sector firms have succeeded in carrying out streamlining to overcome this very problem and thus made themselves profitable.

The average ratio of nonperforming loans to overall bank lending has declined from a peak of 8.7 percent in fiscal 2001 to 2.9 percent in fiscal 2004 — which is below even the international average.

There is no reason why government-linked services should be free of the same employment and profitability considerations that dictate the operation of private-sector firms.

Above all, inefficient organizations — if denied the benefit of reform — can never be attractive places for working people.

The "zero-interest-rate" situation mirrors Japan's problems with fund management. Structural reforms have improved the profitability of private-sector businesses, but the low profitability of the public sector continues to drag down the overall efficiency of the economy, preventing the central bank from ending its zero-interest-rate policy.

At the Gleneagles summit, the G8 leaders decided to give financial aid to African countries, and Japan is bidding for a permanent seat on the Security Council while reform of the United Nations is being discussed.

However, Japan will not be able to play a role commensurate with such a status unless it reduces its huge public-sector debt. We must not forget that a lack of reform in postal operations will further exacerbate the government's debt woes.

Fortunately, the Democratic Party of Japan, which opposes the government's postal bills, says that the postal operations should "in principle" be privatized.

Before the ongoing Diet session closes on Aug. 13, the legislature should fully discuss what kind of postal organization will increase convenience for consumers, boost its own profitability, and provide incentives to its workers. Such a debate, I hope, will lead to enactment of the postal bills.

Teruhiko Mano is a professor at Seigakuin University Graduate School.


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